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He's b-a-a-a-ck. The Maestro himself, one-third of The Committee to Save the World, Sir Alan Greenspan. With the Dow Jones Industrial Average coming off a winning streak only slightly less impressive than the Miami Heat's, the former Federal Reserve chairman popped up on Bubblevision Friday morning. At that point, the Blue Chips were coming off 10 straight-up sessions totaling 485 points, or 3.4%, at a another fresh peak of 14,539.14.

Those levels, Greenspan declared, represented anything but "irrational exuberance," which, of course, was his signal contribution to Bartlett's. For those who weren't around or don't recall the last decade of the previous century, that was one of the phrases that defined the times, along with "I did not have sexual relations with that woman" and "What the meaning of 'is' is."

Back in December 1996, the then-Fed head wondered aloud, "How do we know when irrational exuberance has unduly escalated asset values?" At the time Greenspan said it, the Dow had closed at around 6,400, which turned out to be a far cry from its peak of over 11,000, which would be reached in January 2000. But the bubble that defined the era was that of the Nasdaq, which nearly quadrupled, from 1300 at the time of the now-famous utterance to its never-to-be revisited peak over 5000 in March 2000.

Now, with the Dow at a record, the Maestro declares stocks to be "undervalued," an assertion that might be open to reasonable debate. It does, however, reflect the increasingly ebullient sentiment becoming more pervasive not only among the financial elite, such as the former Fed chairman, but also celebrities far removed from the markets.

Doug Kass, the head of Seabreeze Partners Management, helpfully passes along further evidence on that score: Mila Kunis, the young actress who starred in last year's cheerfully vulgar comedy hit Ted, revealed in an interview that "I've just started investing in stocks, which is new for me." This is just the latest in the great tradition of celebrity market calls. Hollywood went crazy for the initial public offerings in the dot-com bubble of the late 1990s, with Barbra Streisand reportedly offering free concert tickets to get pieces of hot deals.

Other signs of frothy sentiment also have been bubbling up, notably a jump in bullishness among investment advisory services polled by Investors Intelligence. Bulls increased sharply to 50.0% last week from 44.2%, while outright bears fell to 18.8% from 21.1%, their largest weekly drop in 10 months. Advisors looking for a correction also dwindled to 31.2% from 34.7%. Moreover, the spread between bulls and bears surged to 31.2% from 23.1% in just a week and put it in "the dangerous territory around 30%," Investors Intelligence commented. A wide spread a year ago preceded a market retreat, the service noted.

So—wouldn't you know it?—the Dow's winning streak ended on Friday after the Maestro's performance that morning, shedding some 25 points. Not that it wasn't due for a rest, to be sure, but Kass also notes a few other warning signs besides celebrities' endorsement of equities. Even as the Dow has been setting records by the day this month, the number of new highs on the New York Stock Exchange has been dwindling. This suggests that the market's leadership is getting more and more concentrated in the major averages' component stocks.

And for Dow Theorists, Kass pointed to the advance in the Dow Transportation Average, which is looking rather extended. The transports were 19% above their 200-day moving average Thursday, implying that the average was well ahead of itself, which has tended to portend a pullback to its trend. The last time this happened was in early May 2010, after which the market fell 18% over the next two months. In January 2010, the transports jumped 19% above their moving average; this was followed by a 12% dip over the next month. And in May 2006, they got 21% above their moving average, after which came an 11% dip over the next two months. Those are the kinds of nasty declines that shake up (and shake out) newly confident or complacent traders over the short term.

MUCH OF THE MARKET'S optimism is based on the economy's resilience in the face of, first, the tax increases resulting from avoiding the fiscal cliff at the beginning of the year and, then, the sequestration spending cuts that began to take effect at the beginning of this month. If this economy can take that one-two punch, it must really have legs, goes the consensus view.

Not so fast, avers Lacy Hunt, chief economist of Hoisington Management, and a lone but steadfast contrarian. Not only isn't the economy improving, in his view it's getting "progressively weaker." The impact of the significant tax changes, which he notes hit the middle and upper classes alike, has yet to be fully felt.

Tax hikes of this magnitude—equal to $275 billion—will take some 1.8% out of a $15.8 trillion economy that grew just 3.85% in nominal terms in 2012. But, historically, the main effects are seen mainly in the second and third quarters after tax hikes take effect, Hunt observes. Initially, consumers try to maintain their standard of living by dipping into savings; later, they cut back.

Also based on the history of natural disasters, spending on rebuilding after Hurricane Sandy should now be near its peak. That jibes with the anecdotal evidence of New Jersey shore resorts working feverishly to be ready for the arrival of tourists on Memorial Day. But, Hunt continues: "It's instructive to see consumer confidence fall off so sharply" in the latest readings, with the University of Michigan measure falling to 71.8 in early March from a final February level of 77.6 and in contrast to an expected rise to 78.

Writes Joshua Shapiro, chief U.S. economist of MFR: "While well off their recession and immediate postrecession lows, absolute levels of consumer confidence and sentiment indices are still quite weak on a historical basis."

As for the source of income for spending—jobs—Hunt is suspicious of the data, the seasonal adjustment of which likely was distorted by the economy's near collapse in late 2008 and 2009 during the financial crisis. Payrolls, which rose significantly more than expected in February, by 236,000, also were robust in early 2012, but subsequently faded.

As for the drop in the headline unemployment rate last month, to 7.7% from 7.9%, Hunt says that just 58.6% of the working-age population was employed in February—versus 59.6% at the end of the recession in June 2009. That measure eliminates all the distortions from the declining participation in the labor force. But it still counts the number of folks with part-time or temporary jobs.

The latter appears to reflect the impact of the Affordable Care Act (aka Obamacare). While the provisions don't take full effect until next Jan. 1, employers must establish a base of full-time workers to whom they have to provide health benefits or pay a penalty by June 30, Hunt says. That provides an incentive to replace full-time employees with multiple part-timers, which would boost reported payrolls, he explains.

Never before have labor-market dynamics been so important, especially as the Federal Open Market Committee gathers to meet this week. Its updated forecasts for the economy and its policy directive will be announced on Wednesday, with Fed Chairman Ben Bernanke holding a press conference that afternoon to explain them. Bet the ranch there will be no change in its quantitative-easing policy, consisting of the purchase of $85 billion a month in Treasury and agency mortgage-backed securities, plus the continuation of the near-zero target for the federal-funds rate.

What markets are most interested in is the Fed's policy-setting panel's thinking about its eventual exit strategy from what I've called QE-4ever. Fed Vice Chairman Janet Yellen, the front-runner to succeed Bernanke when his term ends next January, has said "substantial improvement in the outlook for the labor market" will be the key for the central bank to withdraw accommodation. So far, that's been defined as a 6.5% jobless rate. But the doves on the FOMC, led by Bernanke and Yellen, must be convinced the jobs picture really is improving.

Eventually, however, the Fed will stop buying about $1 trillion a year in assets, which now heavily spikes the punch bowl for the financial markets. Ever the contrarian, Hunt contends that the punk economy is holding down Treasury yields and that the strong seasonally adjusted economic numbers tend to produce a peak in yields and a low in prices in the spring.

The consensus says bond yields have nowhere to go but higher. Eventually, that view will be right. But Hunt thinks the 30-year Treasury bond will drop from 3.20% in fits and starts, to 2% before then.